Saturday, 23 February 2013

Britain suffered its first ever sovereign ratings downgrade from a major agency on Friday, after Moody's stripped the country of its coveted top-notch triple-A rating, dealing a major blow to finance minister George Osborne.

Moody's cut Britain's rating by one notch to Aa1 from Aaa, with a stable outlook, blaming weak prospects for Britain's economy over the coming years which have thrown the government's deficit reduction strategy off course.

While the UK may have lost the confidence of Moody's, confidence in Germany has increased. The Ifo business climate index jumped to 107.4 in February from 104.3 in January, taking it to a 10-month high.

The rest of the euro area may not do as well as Germany though. A report on Friday showed that the European Commission has revised down its economic forecast for the region and now sees it contracting 0.3 percent this year compared with a November forecast of 0.1 percent growth.

Meanwhile, China may need to see some slowing, at least in its home prices. Home prices rose in January in 53 of the 70 Chinese cities tracked by the government. While this is down from 54 in December, many analysts see policy tightening as likely in 2013. A recent Bloomberg survey showed that 10 out of 24 economists expect the People's Bank of China to raise interest rates this year.